Higher growth and more subdued inflation in 2017-18
- Our MICA-BBVA model for short-term growth estimates a quarterly GDP figure of around 0.6% in 3Q17, after the slight upward revision to 2Q17 growth to 0,7% QoQ.
- Confidence moderated slightly in October, and seems to be stabilizing. The service sector lost all the ground recovered in September offsetting the improvement in manufacturing.
- Activity data improved in August, after disappointing figures in July, suggesting that the recovery in the industrial sector and exports remains on track supported by both strong domestic and global demand, while the impact of the euro seems to be limited so far. Retail sales softened again in August, suggesting some moderation in consumption, but employment gains and the positive consumer mood will continue to support it.
- We revise upwards GDP growth forecast on account of stronger data and strengthening domestic drivers to 2.2% in 2017 and 1.8% in 2018 amid high political uncertainty.
- Headline inflation is expected to decline by year end driven by the negative base effect of energy prices along with the appreciation of the euro, while core inflation is likely to remain fairly stable until the end of the year, after increasing by 0.5pp since end-2016, keeping a very gradual upward trend onwards.
- We revise slightly down our headline inflation forecasts to 1.5% in 2017 and 1.2% in 2018, but maintain our projections for core inflation (1.1% and 1.4%, respectively).